Types of Mortgages

Different Mortgage types;

• Fixed / Floating
• Capped Rate Loan
• Revolving Credit Home Loan
• Reverse Equity Mortgage
• Conforming and Non-Conforming
• Interest Only

Q: What is the difference between a Fixed Rate Mortgage and a Floating Rate Mortgage?
A: A fixed rate mortgage is a loan in which the interest rate does not change during the entire term of the loan. With this type of mortgage your monthly payments for principal and interest never change.

A floating rate mortgage permits the lender to adjust the interest rate periodically during the term of a loan. Floating rate loans generally begin with an interest rate below a comparable fixed rate mortgage and can allow you to buy a more expensive home. However, the interest rate changes at the specified intervals depending on changing market conditions.

The right type of mortgage for you depends on many factors including;

• Your current financial picture
• How you expect your finances to change
• How long you intend to keep your house
• How comfortable you are with your mortgage payment changing from time to time
• How much risk you are willing to take

Q: What is a Capped Rate Loan?
A: With a capped interest rate, the rate can't go above a certain level for a set time – 1, 2 or 3 years – but it can come down.This gives you certainty about your payments, and you get the benefit if interest rates drop.

With a capped loan you also have the flexibility to change your payments or to pay all or part of your loan back at any time – at no charge

Q: What is a Revolving Credit Loan?
A: Revolving Credit challenges traditional thinking about home loans. It is an extremely powerful and flexible financial tool, which puts financial control into your hands – hence you need to be disciplined.

This Mortgage combines your Mortgage, cheque and savings into one. These accounts have the same access to the funds as they do with normal transactional accounts, including cheques, ATM, and Eftpos, internet banking, direct debits and phone direct.

Q : What is a reverse equity mortgage?
A : If you are looking for a mortgage without monthly payments and are over the age of 60, a reverse mortgage may be a perfect fit.

A reverse mortgage is a loan based on the value of a home that requires no monthly payment until the owner moves or dies. The loan is paid off when the house is sold after they move or when the estate is settled after a death.

Since there is no monthly payment, a reverse mortgage is relatively painless. Income has little to do with qualifying so borrowers who would not meet the criteria for many other loans would still be able to acquire a reverse mortgage.

Q: What are "conforming" and "non-conforming" loans?
A: A "conforming" loan meets loan limits and underwriting guidelines established by the Mainstream Lenders, and "Non-conforming" loans or mortgages exceed these limits such as adverse credit, self employed with no financials etc….

Q: What is an Interest Only loan?
A: A mortgage is “interest only” if the scheduled monthly mortgage payment – the payment the borrower is required to make --consists of interest only.

The option to pay interest only lasts for a specified period, usually 5 to 10 years. Borrowers have the right to pay more than interest if they want to.

If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal. The result is that the loan balance will remain unchanged.

For example, if a 30-year loan of $100,000 at 6.25% is interest only, the required payment is $520.83. In contrast, borrowers who have the same mortgage but without an IO option, would have to pay $615.72.

This is the "fully amortizing payment" – the payment that would pay off the loan over the term if the rate stayed the same. The difference in payment of $94.88 is “principal”, which go to reduce the balance.